How Sticky Wages in Existing Jobs Can Affect Hiring

49 Pages Posted: 4 Apr 2015

See all articles by Mark Bils

Mark Bils

University of Rochester - Department of Economics; National Bureau of Economic Research (NBER)

Yongsung Chang

University of Rochester - Department of Economics; Yonsei University - Department of Economics

Sun-Bin Kim

Concordia University, Quebec - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2014

Abstract

We consider a matching model of employment with wages that are flexible for new hires, but that are sticky within matches. We depart from standard treatments of sticky wages by allowing worker effort to respond to the wage being too high or low. Shimer (2004) and others have illustrated that employment in the Mortensen-Pissarides model does not depend on the degree of wage flexibility in existing matches. But that is not true in our model. If wages of matched workers are stuck too high in a recession, then firms will require more effort, lowering the value of additional labor and reducing new hiring.

Keywords: unemployment, sticky wages, effort

JEL Classification: E32, E24, J22

Suggested Citation

Bils, Mark and Chang, Yongsung and Kim, Sun-Bin, How Sticky Wages in Existing Jobs Can Affect Hiring (August 1, 2014). FRB Atlanta CQER Working Paper No. 14-4. Available at SSRN: https://ssrn.com/abstract=2586116 or http://dx.doi.org/10.2139/ssrn.2586116

Mark Bils (Contact Author)

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627-0158
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yongsung Chang

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627
United States

Yonsei University - Department of Economics ( email )

50 Yonsei-Ro
Seoul, 120-749
Korea

Sun-Bin Kim

Concordia University, Quebec - Department of Economics ( email )

1455 de Maisonneuve Blvd., W.
Montreal, Quebec H3G 1MB
Canada
514-848-3923 (Phone)

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